Exam 15: Choice of Business Entity - Other Considerations

The employee's contribution to a nonqualified pension plan cannot be deferred,and the employer is not allowed a tax deduction for the contribution even though the employee includes the contribution in their income.

Under a Roth IRA I.Any taxpayer may contribute and deduct up to $5,500 deductible contributions per year. II.The maximum contribution is phased-out for unmarried taxpayers with adjusted gross income between $112,000 and $127,000.

Ortiz Corporation determined its AMTI to be $120,000 for 2013.If the regular income tax liability is $15,000,what is the amount of the alternative minimum tax for 2013?

A Keogh plan is a type of qualified pension for self-employed individuals.An individual or entity that establishes a Keogh plan can I.Only establish a defined contribution profit sharing pension plan. II.Have both employees and self-employed individuals as participants.

Patricia and her daughter Sheila each own 50% of Draper,Inc.Patricia is the president and CFO of the corporation and receives a salary of $125,000.Other individuals with similar responsibilities as Patricia are paid approximately the same salary.Sheila,who is vice president,is paid a salary of $50,000.However,Sheila is not involved in the business decisions and rarely visits the office.Which of the following are correct statements? I.Draper can deduct $175,000 as salary expense. II.Sheila must report $50,000 as income.

Match each statement with the correct term below. -Alternative minimum tax

The adjustment for three-fourths of the excess adjusted current earnings (ACE)over AMTI before the ACE adjustment applies only to corporations.

When calculating AMTI,individual taxpayers must add back the following: I.The standard deduction amount. II.Casualty and theft losses.

Ross and Reba are both in their 30's and they are married.Reba earns $64,000 annually,and Ross earns $1,800 annually working part time.Their adjusted gross income is $81,500.Reba participates in an employer-sponsored retirement plan.Ross and Reba contribute the maximum amount allowable annually to their IRAs.What is their allowable deduction for this year's contributions?

A Keogh plan must be established as a defined contribution plan,and the rules are similar to those of a qualified pension plan.

Jane is a partner with Smithstone LLP.Smithstone maintains a profit-sharing Keogh plan for its partners and employees.Determine the maximum deductible contribution Jane can make to the plan in each of the following situations: a.Jane's net self-employment income is $80,000. b.Jane's net self-employment income is $280,000.

On May 5,2011,Elton Corporation granted Germaine an option to acquire 100 shares of the company's stock for $ 8 per share.The fair market price of the stock on the date of grant was $14.The stock requires that Germaine remain with the company for one year after the date of exercise.The option did not have a readily ascertainable fair market value.Germaine exercises the option on June 12,2012,when the fair market value of the stock is $18.On June 12,2013,the fair market value of the stock is $21 per share.How much must he report as income in 2012 and 2013? 2012 2013 a. $\$ 1,000 \quad \$ 300$ b. $\$ 1,000 \quad \$-0-$ c. $\$ 400 \quad \$-0-$ d. $\$-0-\quad \$ 1,300$

Match each statement with the correct term below. -Incentive stock option

For the current year,Steven's tentative alternative minimum tax is $24,360.His regular tax liability is $23,000.Steven has $24,000 in taxes withheld from his salary. I.Steven's alternative minimum tax is $1,360 II.Steven's tax liability is $23,000. III.Steven will have to pay an additional $360 in tax. IV.Steven's total tax liability is $24,360

Sonya is an employee of Gardner Technology and will retire at the end of the current year after 8 years of service.Under Gardner's pension plan she can retire at 60% of the average of her three highest consecutive years' salary.Her average for the highest consecutive years' salary was $30,000.What is the maximum amount Sonya can receive from Gardner's pension plan?

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied.Which of the following are correct statements about the credit? I.If the rehabilitated structure is sold before the end of the ten-year period following the year of the tax credit,recapture occurs. II.The amount of the credit can be either 10% or 20% of qualified expenditures,depending on the classification of the building.

Harriet is an employee of Castiron Inc.and earns $200,000 in 2012.The maximum amount Castiron can contribute to a money purchase plan on behalf of Harriet is

On January 22,2011,Dalton Corporation granted Kathleen an option to acquire 1,500 shares of the company's stock for $ 7 per share.The fair market price of the stock on the date of grant was $13.The stock requires that Kathleen remain with the company for one year after the date of exercise.The option did not have a readily ascertainable fair market value.Kathleen exercises the option on August 10,2012,when the fair market value of the stock is $17.She makes a Section 83 (b)election at the exercise date.On August 10,2013,the fair market value of the stock is $23 per share.How much must she report as income in 2012 and 2013? $2012 \quad\quad \quad 2013$ a. $\$ - 0$ - $\quad \$ 15,000$ b. $\$ - 0$ - $\quad \$ 24,000$ c. $\$ 10,500 \quad \$ 4,500$ d. $\$ 15,000 \quad \$ - 0 -$

Cisco and Carmen are both in their 30's and are married.Carmen earns $69,000 and Cisco earns $28,000.Their adjusted gross income is $102,000.Carmen is an active participant in her company's pension plan.Cisco's employer does not have a pension plan.What are Carmen and Cisco's maximum combined IRA contribution and deduction amounts? $\underline { \text { Contribution} }$ $\quad \underline { \text { Deduction }}$ b. $\$ 11,000 \quad\quad \quad \$ 5,500$ c. $\$ 11,000 \quad \quad \quad \$ 9,075$ d. $\$ 11,000 \quad \quad \quad \$ 11,000$

Savings incentive match plan for employees (SIMPLE)were created to encourage small businesses to establish retirement plans for their employees.